'Shadow inventory' is growing

Published: Thursday, March 28, 2013 at 1:00 a.m.

Last Modified: Wednesday, March 27, 2013 at 9:32 p.m.

A wave of foreclosed properties slated to flood the market in the next few years could cool the home prices that have been heating up in Southwest Florida, a new report predicts.

The potential influence of so-called shadow inventory -- homes that are undergoing foreclosure but have yet to be seized by a lender or are bank-owned -- comes as banks are rushing to refile default cases that stalled because of the "robo-signing" controversy of late 2010.

In all, an estimated 11,102 properties are delinquent in Sarasota, Manatee and Charlotte counties still navigating the lengthy judicial foreclosure process.

Those homes have yet to be listed for sale, and only 7.5 percent of them are vacant, according to a new shadow-inventory report by research firm RealtyTrac Inc.

Statewide, Florida leads the nation in the number of homes that will likely comprise shadow inventory in the years ahead, RealtyTrac notes.

But when those foreclosures are completed and banks list them for sale, they could bring relief to a regional housing market facing its tightest supply in a decade, according to Realtors' groups.

Nearly two-thirds of all delinquent loans that will likely become part of Southwest Florida's shadow inventory are secured by homes valued at $100,000 to $300,000, records show.

In addition, because foreclosures are typically priced below short sales and more traditional transactions, shadow inventory could deflate appreciation sellers are now enjoying, market watchers predict.

The severity of that impact all depends on the pace at which banks unwind their foreclosed properties, said Dennis Black, a Port Charlotte real estate consultant.

"If this stuff gets dumped all at once, the market will collapse," Black said. "So the question really is how the banks handle this shadow inventory, and how much support the largest holders of shadow inventory will get to sit on properties a while."

Foreclosures up 66%

The total foreclosure inventory in Southwest Florida counties amounts to more than 16,000 properties, if current bank-owned properties are factored in.

That figure is up 66 percent from the first quarter of 2012, according to RealtyTrac.

The biggest gains year-over-year, the research firm states, have come in unlisted, pre-foreclosure inventory, which has risen 122 percent in Sarasota County; 62 percent in Manatee County; and 113 percent in Charlotte County.

But because only 836 of the region's foreclosures are now vacant, it could take years for lenders to gain control of and resell them.

When that does occur, institutional investors and retiring baby boomers will likely be waiting.

The two groups, which have snapped up foreclosures over the past two years, have helped push residential real estate sales to their healthiest mark in six years.

Hedge and equity funds and other institutional investors also have pumped up median home prices by $21,800 during the past year alone by tending to pay more than asking prices for properties they desire.

While many in the industry, like the consultant, Black, now fear that the shadow inventory could decrease prices if it is put on the market too quickly, lenders have to date garnered better returns by bringing the seized properties to market cautiously.

Bulk foreclosure buyers like the giant New York-based Blackstone Group, which has paid as much as 40 percent above market value for homes, also should sustain prices -- if they continue buying.

"It's not been a wave, but more of a slow trickle," said Lee Forbes, broker and owner of the Forbes Property Group, in Bradenton, of the shadow inventory. "It's giving the banks a chance to earn a little more on the properties they took a bath on."

Florida is No. 1

Florida now tops the nation in shadow inventory, with 207,753 total foreclosures that have yet to come to market -- nearly one-third of the U.S. total.

That figure is up 134 percent from the same time last year, according to RealtyTrac.

In addition to the shadow inventory, another one-third of all residential mortgage borrowers in Florida are believed to be current on their loan payments but owe more than their properties are worth. Some of those underwater houses also are likely to join the foreclosure ranks in coming months, experts predict.

Analysts attribute the surge across the Sunshine State to the National Mortgage Settlement signed last April, which gave banks clearer guidelines for processing foreclosures and more defined penalties for mistakes.

Across the country, nearly 1.5 million U.S. properties were either undergoing foreclosure or were bank-owned in the first quarter, up 9 percent from the initial three months of 2012 but down 32 percent from a peak of 2.2 million in December 2010.

Government-backed Fannie Mae, Freddie Mac and FHA/HUD remain the largest owners of foreclosed properties, with a combined 12 percent of the national total.

Bank of America, by comparison, owns 11 percent, followed by Wells Fargo at 10 percent and Chase with 7 percent.

"It's been a big fear of mine that these banks have been holding back, holding back, holding back," said Jack McCabe, a real estate consultant in Deerfield Beach.

"Now, they're ramping up," McCabe said. "But a combination of banks trying to control the flow of distressed properties coming onto the market, and hedge funds trying to protect the investment they've already made will prevent a rapid decline in prices."

<p>A wave of foreclosed properties slated to flood the market in the next few years could cool the home prices that have been heating up in Southwest Florida, a new report predicts.</p><p>The potential influence of so-called shadow inventory -- homes that are undergoing foreclosure but have yet to be seized by a lender or are bank-owned -- comes as banks are rushing to refile default cases that stalled because of the "robo-signing" controversy of late 2010.</p><p>In all, an estimated 11,102 properties are delinquent in Sarasota, Manatee and Charlotte counties still navigating the lengthy judicial foreclosure process.</p><p>Those homes have yet to be listed for sale, and only 7.5 percent of them are vacant, according to a new shadow-inventory report by research firm RealtyTrac Inc.</p><p>Statewide, Florida leads the nation in the number of homes that will likely comprise shadow inventory in the years ahead, RealtyTrac notes.</p><p>But when those foreclosures are completed and banks list them for sale, they could bring relief to a regional housing market facing its tightest supply in a decade, according to Realtors' groups.</p><p>Nearly two-thirds of all delinquent loans that will likely become part of Southwest Florida's shadow inventory are secured by homes valued at $100,000 to $300,000, records show.</p><p>In addition, because foreclosures are typically priced below short sales and more traditional transactions, shadow inventory could deflate appreciation sellers are now enjoying, market watchers predict.</p><p>The severity of that impact all depends on the pace at which banks unwind their foreclosed properties, said Dennis Black, a Port Charlotte real estate consultant.</p><p>"If this stuff gets dumped all at once, the market will collapse," Black said. "So the question really is how the banks handle this shadow inventory, and how much support the largest holders of shadow inventory will get to sit on properties a while."</p><p><b>Foreclosures up 66%</p><p></b></p><p>The total foreclosure inventory in Southwest Florida counties amounts to more than 16,000 properties, if current bank-owned properties are factored in.</p><p>That figure is up 66 percent from the first quarter of 2012, according to RealtyTrac.</p><p>The biggest gains year-over-year, the research firm states, have come in unlisted, pre-foreclosure inventory, which has risen 122 percent in Sarasota County; 62 percent in Manatee County; and 113 percent in Charlotte County.</p><p>But because only 836 of the region's foreclosures are now vacant, it could take years for lenders to gain control of and resell them.</p><p>When that does occur, institutional investors and retiring baby boomers will likely be waiting.</p><p>The two groups, which have snapped up foreclosures over the past two years, have helped push residential real estate sales to their healthiest mark in six years.</p><p>Hedge and equity funds and other institutional investors also have pumped up median home prices by $21,800 during the past year alone by tending to pay more than asking prices for properties they desire.</p><p>While many in the industry, like the consultant, Black, now fear that the shadow inventory could decrease prices if it is put on the market too quickly, lenders have to date garnered better returns by bringing the seized properties to market cautiously.</p><p>Bulk foreclosure buyers like the giant New York-based Blackstone Group, which has paid as much as 40 percent above market value for homes, also should sustain prices -- if they continue buying.</p><p>"It's not been a wave, but more of a slow trickle," said Lee Forbes, broker and owner of the Forbes Property Group, in Bradenton, of the shadow inventory. "It's giving the banks a chance to earn a little more on the properties they took a bath on."</p><p><b>Florida is No. 1</p><p></b></p><p>Florida now tops the nation in shadow inventory, with 207,753 total foreclosures that have yet to come to market -- nearly one-third of the U.S. total.</p><p>That figure is up 134 percent from the same time last year, according to RealtyTrac.</p><p>In addition to the shadow inventory, another one-third of all residential mortgage borrowers in Florida are believed to be current on their loan payments but owe more than their properties are worth. Some of those underwater houses also are likely to join the foreclosure ranks in coming months, experts predict.</p><p>Analysts attribute the surge across the Sunshine State to the National Mortgage Settlement signed last April, which gave banks clearer guidelines for processing foreclosures and more defined penalties for mistakes.</p><p>Across the country, nearly 1.5 million U.S. properties were either undergoing foreclosure or were bank-owned in the first quarter, up 9 percent from the initial three months of 2012 but down 32 percent from a peak of 2.2 million in December 2010.</p><p>Government-backed Fannie Mae, Freddie Mac and FHA/HUD remain the largest owners of foreclosed properties, with a combined 12 percent of the national total.</p><p>Bank of America, by comparison, owns 11 percent, followed by Wells Fargo at 10 percent and Chase with 7 percent.</p><p>"It's been a big fear of mine that these banks have been holding back, holding back, holding back," said Jack McCabe, a real estate consultant in Deerfield Beach.</p><p>"Now, they're ramping up," McCabe said. "But a combination of banks trying to control the flow of distressed properties coming onto the market, and hedge funds trying to protect the investment they've already made will prevent a rapid decline in prices."</p>